GBP: Risks are more making and less breaking - ING
According to Viraj Patel, Foreign Exchange Strategist at ING, suggests that they suspect a frenetic week could be in store for GBP markets as Brexit and Bank of England policy risks clash head-on.
Key Quotes
“If all the cards were to fall perfectly into place for GBP next week - that is the trifecta of an agreed Brexit transition deal, a status quo hawkish Bank of England policy message and constructive UK wage inflation data - we would expect to see a bullish breakout in GBP (especially against a weak USD), and would not rule out a sharp move up towards the year-to-date highs around 1.4250-1.4300 (+2.0% approx).”
“Yet, while it may be tempting to paint next week as a make-or-break moment for GBP - it may be one that is more of an 'emotional' (and not so much an actual) rollercoaster for the currency. In the absence of a complete deadlock in Brexit negotiations, which we assign a trivial risk to, then look for the pound to exhibit the resilience that it has shown under a new Brexit trading environment in 2018 (see GBP: Bad Brexit vibes return... but this time may be different).”
“With BoE policy tightening, a resilient UK economy and a weak US dollar amid the White House chaos all acting as a 'puts' on the pound amid short-term Brexit risks, we continue to think risk-reward favours chasing GBP/USD upside over the coming months. We target GBP/USD at 1.45 in 2Q18.”
“Equally, the currency should hold its ground against a strong euro and we look for EUR/GBP to trade within the broad 0.85-0.90 range, with a positive Brexit transition outcome suggesting greater risks of a move to the 0.86-0.87 range in the near-term.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
